The BBC's Beijing correspondent, Stephen McDonell, has published an interesting report on how Chinese banks are altering their financial relationships with North Korea.
The Chinese government fears that the U.S. will sanction its major financial institutions if they continue to assist North Korean financial interests. So, in order to reduce U.S. antagonism, China is ordering its banks to scale back their North Korean-related activities. As McDonell explains, "Staff from at least seven branches from the Bank of China and the Industrial and Commercial Bank of China have confirmed to the BBC that new North Korean bank accounts will not be opened."
This is good news for efforts to pressure North Korea, but we should keep China's actions in proportion.
First off, it doesn't appear that Chinese banks are taking action to remove existing North Korea front companies and individuals from their accounts. That means Kim Jong Un will continue to benefit from a steady stream of revenue from his various illicit activities around the world. As McDonell notes, North Korea can also use new Chinese intermediaries to establish separate bank accounts for the regime. After all, the profit incentive for Kim, his cutouts, and China remains significant.
Still, China's action thus far proves its vulnerability to U.S. economic pressure. And as the Trump administration attempts to persuade China to get Kim to suspend his ballistic missile tests, it must be ready to take increased action against Chinese financial institutions. Yes, doing so would pose risks to U.S. economic interests, but America's comparative global trade position is stronger than China. Consider that Europe exports twice as much to the U.S. as to China, and that U.S. imports of China's low-value goods could be offset at marginal cost by other trading partners like Vietnam and the Philippines.
Put simply, China cannot win an economic escalation against the U.S., and its leaders know that.
As I've argued, U.S. interests at stake in the North Korea crisis are profound. Kim Jong Un's rationality is highly questionable and his nuclear intercontinental ballistic missile program is advancing rapidly on multiple fronts. In turn, the U.S. must be ready to take bold, risky, and decisive action in the diplomatic-economic sphere.
We must also remember that not all diplomatic action is nice and easy. Sometimes diplomacy requires choices that create deep tensions with other nations. Sometimes, even as it reduces conflict in one area, diplomacy can make conflict likelier in another. Nevertheless, we have few good options to resolve this crisis peacefully.
If existing diplomatic efforts do not pay dividends over the next few weeks, then it will be time for the U.S. to start targeting Chinese banks and their partners.